CHAPTER 8

Consumer Mathematics
and Financial
Management

2010 Pearson Prentice Hall. All rights reserved.

8.1
Percent, Sales Tax, and Income Tax

2010 Pearson Prentice Hall. All rights reserved.

1.
2.
3.
4.
5.
6.
7.

Objectives
Express a fraction as a percent.
Express a decimal as a percent.
Express a percent as a decimal.
Solve applied problems involving sales tax and
discounts.
Compute income tax.
Determine percent increase or decrease.
Investigate some of the ways percent can be abused.

2010 Pearson Prentice Hall. All rights reserved.

Basics of Percent
Percents are the result of expressing numbers as a
part of 100.
The word percent means per hundred.

Expressing a fraction as a percent:

1. Divide the numerator by the denominator.
2. Multiply the quotient by 100. This is done by moving
the decimal point in the quotient two places to the
right.
3. Add a percent sign.
2010 Pearson Prentice Hall. All rights reserved.

Example 1: Expressing a Fraction as a Percent

5
Express as a percent.
8
Solution:
Step 1. Divide the numerator by the denominator.
5 8 = 0.625
Step 2. Multiply the quotient by 100.
0.625 100 = 62.5
Step 3. Add a percent sign.
62.5%
5
Thus, = 62.5%.
8
2010 Pearson Prentice Hall. All rights reserved.

Expressing a Decimal as a Percent

To express a decimal as a percent:

1. Move the decimal point two places to the right.
2. Attach a percent sign.

2010 Pearson Prentice Hall. All rights reserved.

Example 2: Expressing a Decimal as a Percent

Express 0.47 as a percent.
Solution:

Thus, 0.47 = 47%.

2010 Pearson Prentice Hall. All rights reserved.

Expressing a Percent as a Decimal Number

To express a percent as a decimal number:
1. Move the decimal point two places to the left.
2. Remove the percent sign.

2010 Pearson Prentice Hall. All rights reserved.

Example 3: Expressing Percents as Decimals

Example: Express each percent as a decimal:
a. 19%
b. 180%
Solution: Use the two steps.
a.

Thus, 19% = 0.19.

b. 180% = 1.80 or 1.8
2010 Pearson Prentice Hall. All rights reserved.

Percent, Sales Tax, & Discounts

Many applications involving percent are based on the
following formula:

Note that of implies multiplication.

We use this formula to determine sales tax collected by
states, counties, cities on sales items to customers.
Sales tax amount = tax rate items cost
2010 Pearson Prentice Hall. All rights reserved.

10

Example 4: Percent and Sales Tax

Suppose that the local sales tax rate is 7.5% and you
purchase a bicycle for $894.
a.How much tax is paid?
b.What is the bicycles total cost?
Solution:
a.Sales tax amount = tax rate items cost
7.5% $894 = 0.075 $894 = $67.05
The tax paid is $67.05.
b. Total Cost = $894.00 + $67.05 = $961.05
The bicycles total cost is $961.05.
2010 Pearson Prentice Hall. All rights reserved.

11

Percent and Sales Price

Businesses reduce prices, or discount, to attract
customers and to reduce inventory.
The discount rate is a percent of the original price.
Discount amount = discount rate original price.

2010 Pearson Prentice Hall. All rights reserved.

12

Example 5: Percent and Sales Price

A computer with an original price of $1460 is on sale at
15% off.
a.What is the discount amount?
b.What is the computers sale price?
Solution:
a.Discount amount = discount rate original price

The discount amount is $219.

2010 Pearson Prentice Hall. All rights reserved.

13

Example 5: Percent and Sales Price continued

b. A computers sale price is the original price, $1460,
minus the discount amount, $219.
Sale price = $1460 $219 = $1241
The computers sale price is $1241.

2010 Pearson Prentice Hall. All rights reserved.

14

Percent and Income Tax

Calculating Income Tax:
1. Determine your adjusted gross income:

2. Determine your taxable income:

2010 Pearson Prentice Hall. All rights reserved.

15

Percent and Income Tax

3. Determine the income tax:

2010 Pearson Prentice Hall. All rights reserved.

16

Percent and Income Tax

The table shows tax rates, standard deductions, and exemptions for
the four filing status categories.

2010 Pearson Prentice Hall. All rights reserved.

17

Example 6: Computing Income Tax

Example: Calculate the income tax owed by a single
woman with no dependents whose gross income,
adjustments, deductions, and credits are given. Use
the marginal tax rates from the table.
Single Woman with no dependents:
Gross income: $62,000
Adjustments: $4,000
Tax credit: $500

2010 Pearson Prentice Hall. All rights reserved.

Deductions:
$7500: mortgage interest
$2200: property taxes
$2400: charitable contributions
$1500: medical expenses not
covered the insurance
18

Percent and Income Tax

Example Continued
Solution:
Step 1. Determine the adjusted gross income.
Adjusted gross income = Gross income Adjustments
= $62,000 $4000
= $58,000

2010 Pearson Prentice Hall. All rights reserved.

19

Example 6 continued
Step 2. Determine taxable income.

We substitute $12,100 for deductions in the formula for taxable

income.
2010 Pearson Prentice Hall. All rights reserved.

20

Example 6 continued
Taxable income = Adjusted gross income (Exemptions + Deductions)
= $58,000

($3500 + $12,100)
= $58,000 $15,600
= $42,400
Step 3. Determine the income tax.
Income tax = Tax computation Tax credits
= Tax Computation $500
Since the single woman taxable income is $42,400 she
falls in the tax bracket of 25%.
2010 Pearson Prentice Hall. All rights reserved.

21

Example 6 continued
This means that she owes:
10% on the first $8025 of her taxable income, 15% on
her taxable income between $8026 to $32,500,
inclusive, and 25% on her taxable income above
$32,550.

2010 Pearson Prentice Hall. All rights reserved.

22

Example 6 continued
= 0.10 $8025 + 0.15 ($32,550 $8025) + 0.25 ($42,400 $32,550)
= 0.10 $8025 + 0.15 ($24,525) + 0.25 $9850

= $802.50 + $3678.75 + $2462.50

= $6943.75
We substitute $6943.75 for the tax computation in the formula for income tax.
Income tax = Tax computation Tax credits
= $6943.75 $500
= $6443.75
Thus, the income tax owed is $6443.75.

2010 Pearson Prentice Hall. All rights reserved.

23

Percent and Change

If a quantity changes, its percent increase or its percent
decrease can be found as follows:
1. Find the fraction for the percent increase or decrease:
amount of increase
original amount

amount of decrease
or
.
original amount

2. Find the percent increase or decrease by expressing

the fraction in step 1 as a percent.
2010 Pearson Prentice Hall. All rights reserved.

24

Example 7: Finding Percent Increase and

Decrease
In 2000, world population was approximately 6 billion. The
data are from United Nations Family Planning Program and
are based on optimistic or pessimistic expectations for
successful control of human population growth.
a. Find the percent increase in
world population from 2000 to
2150 using the high
projection data.
b. Find the percent decrease in
world population from 2000 to
2150 using the low projection
data.
2010 Pearson Prentice Hall. All rights reserved.

25

Example 7: Finding Percent Increase and

Decrease continued
Solution:
a. Use the data shown on the blue, high-projection,
graph.
amount of increase
Percent increase

original amount
30 6 24

4 400%
6
4

The projected percent increase in world population is

400%.

2010 Pearson Prentice Hall. All rights reserved.

26

Example 7: Finding Percent Increase and

Decrease continued
b. Use the data shown on the green, low-projection,
graph.
amount of decrease
Percent decrease
original amount
64 2 1
1

33 %
6
6 3
3

The projected percent decrease in world population is

33%.
2010 Pearson Prentice Hall. All rights reserved.

27

Example 9: Abuses of Percents

John Tesh, while he was still co-anchoring Entertainment Tonight,
reported that the PBS series The Civil War had an audience of 13%
versus the usual 4% PBS audience, an increase of more than
300%. Did Tesh report the percent increase correctly?
Solution: We begin by finding the actual percent increase.
amount of increase
Percent increase
original amount
13 4 9

2.25 225%
4 This is not more than
The percent increase for PBS was4 225%.

300%, so Tesh did not report the percent increase correctly.

2010 Pearson Prentice Hall. All rights reserved.

28